Correlation Between GM and Absolute Capital

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Can any of the company-specific risk be diversified away by investing in both GM and Absolute Capital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GM and Absolute Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Absolute Capital Asset, you can compare the effects of market volatilities on GM and Absolute Capital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GM with a short position of Absolute Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Absolute Capital.

Diversification Opportunities for GM and Absolute Capital

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between GM and Absolute is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Absolute Capital Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Capital Asset and GM is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on General Motors are associated (or correlated) with Absolute Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Capital Asset has no effect on the direction of GM i.e., GM and Absolute Capital go up and down completely randomly.

Pair Corralation between GM and Absolute Capital

Allowing for the 90-day total investment horizon General Motors is expected to generate 4.28 times more return on investment than Absolute Capital. However, GM is 4.28 times more volatile than Absolute Capital Asset. It trades about 0.09 of its potential returns per unit of risk. Absolute Capital Asset is currently generating about 0.15 per unit of risk. If you would invest  4,676  in General Motors on September 16, 2024 and sell it today you would earn a total of  577.00  from holding General Motors or generate 12.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

General Motors  vs.  Absolute Capital Asset

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.
Absolute Capital Asset 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Capital Asset are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Absolute Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GM and Absolute Capital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Absolute Capital

The main advantage of trading using opposite GM and Absolute Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Absolute Capital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Absolute Capital will offset losses from the drop in Absolute Capital's long position.
The idea behind General Motors and Absolute Capital Asset pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center.
Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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